An Estate without Trust: An Introduction to Estate and Trust Litigation

Two of the most difficult situations that people find themselves in are the administration of a deceased loved one’s estate and an active litigation matter.   It is no surprise then that when those two stressful situations combine, the resulting conflict can result in loss of assets and the destruction of close family bonds. In order to minimize the damage that an estate or trust litigation can bring, it helps to understand how these type of matters are handled.

In New York state, litigation involved trusts and estates are handled by the Surrogate’s Court in the county where the trust or estate is situated. While there are a wide variety of actions that can be brought in the Surrogate’s Court, there are few very common actions that trusts and estates professionals see repeatedly. They include:

  1. Will Contests-If a family member or another presumed beneficiary of an estate believes that a will presented to the court is either invalid or does not express the deceased individual’s actual intent, a will contest can be brought. If the challenge is based on the intent of the Testator, the person(s) contesting the will must show that the Testator either lacked capacity when they executed the will or they were unduly influenced by another party to agree to certain provisions of the will.
  1. Construction Proceedings-A will or trust may be considered valid by all parties, but one or more provisions may be open to multiple interpretations. A construction proceeding is mechanism by which the Court can determine, based on evidence provided by each side, what the testator or a will or the grantor of a trust intended with regard to certain provisions in their documents.
  1. Discovery and Turnover Proceedings-In some instances, property that should be in the possession of an estate or trust has to be turnover to the respective fiduciaries. If the person in possession of that property is unwilling to voluntarily turn it over to the fiduciaries, the fiduciaries or other interested parties may request a discovery and/or turnover proceeding to determine if certain assets should be distributed to the fiduciaries.
  1. Contested Accountings-All fiduciaries, whether executors of an estate or trustees of a trust, have an obligation to provide their beneficiaries with a regular account of their activities.   If a beneficiary believes that the fiduciary has acted improperly, he or she may use the fiduciary’s accounting as a basis to contest certain actions that they have taken. Failure by a fiduciary to account voluntarily may lead to a mandatory accounting ordered by the court and additional relief for the beneficiaries.
  1. Fiduciary removal proceeding-If the actions of a fiduciary are so egregious that the beneficiaries believe that they can no longer serve the interests of the beneficiaries, trust or estate, they may petition the court to have the fiduciary removed.   Removal is a severe form of relief that the court is reluctant to grant unless they are presented with sufficient evidence to justify relief. If a fiduciary’s actions can be justified as being within the discretion they are granted, the court will likely seek alternative solutions rather than removing them from their positions.

Avoiding the cost and stress of an estate or trust litigation is among the most important goals an estate planner has when suggested certain planning options. Unfortunately, there is no guaranteed way to avoid litigation entirely. Proper planning beforehand and quality representation if litigation does occur are key to ensure the best possible outcome in these extremely difficult situations.

 

For more information on estate and trust litigation, please contact info@levyestatelaw.com

 

Advertisements

Five Fiduciary Failures That Can Land You In Surrogate’s Court

The selection of a fiduciary requires a great deal of care and consideration on the part of an individual preparing their estate plan.  The choice can be difficult, especially if there are a limited amount of possible candidates.  In the end, the decision should turn on one question-who will protect the property and provide for the beneficiaries the best?

For a nominated fiduciary, how they were chosen is far less important than what they were chosen to do.  Far too many fiduciaries are appointed or accept their nomination without fully understanding the duties that they will owe the beneficiaries of the estates and trusts they administer.  These failures can cost an estate or trust thousands and even millions of dollars.  They can also cause a fiduciary to be subject of an action in the Surrogate’s Court.

Understanding these duties is an important part of serving as a fiduciary.  Amongst the duties owed by a fiduciary are:

  1. Duty to prudently invest-A fiduciary must ensure that the assets they are responsible for are invested in a prudent manner given their specific circumstances.  Fiduciaries must prepare an investment strategy that matches the needs of the beneficiaries and gives due consideration to issues of risk, preservation of principal and production of income.
  2. Duty to distribute-In a last will and testament or in a trust, the specific distribution schemes are laid out.  It is expected that a fiduciary will ensure that the property that they collect and administer is distributed in timely and regular payments to the beneficiaries.  While there may be circumstances where a fiduciary is not allowed to distribute or where a distribution is not prudent, a failure to distribute that has no basis is likely to result in unhappy and potentially litigious beneficiaries.
  3. Duty of loyalty to the beneficiaries-A fiduciary is expected to act with greater care and concern towards his or her beneficiaries than a normal standard of care. In addition to having to be honest with the beneficiaries, a fiduciary is generally forbidden from self-dealing with the property they are administering.  A fiduciary cannot compete with the trust or estate they are administering.  When a fiduciary puts his or her interest above or in conflict with the trust or estate they administer, they are setting themselves up for potential litigation.
  4. Duty to exercise reasonable care and skill-A fiduciary is not required to have a background in finance, tax or law in order to qualify to serve.  However, a fiduciary is expected to use reasonable care and skill to ensure that the property they are administering is not diminished because of their actions.  A fiduciary can make reasonable mistakes, such as choosing an unsuccessful investment portfolio, but will expose themselves to litigation for failing to take the necessary steps to protect an estate or trust.  Failing to collect assets, failing to file tax returns and other major mistakes should be avoided.
  5. Duty to account and inform beneficiaries-A fiduciary who fulfills his or her other duties to an estate or trust may still find themselves party to litigation if they do not properly account for their actions.  Preparing a formal accounting can be time-consuming and expensive, but usually less cumbersome than litigation.  By providing beneficiaries with periodic informal accountings and additional records upon request, a fiduciary can potentially shield themselves from liability

Abiding by his or her duties is not a guaranty that a fiduciary or estate litigation will not be commenced.  If a fiduciary fulfills their duties, however,  commencing and maintaining a successful litigation becomes much more difficult for the aggrieved beneficiaries.

Please contact info@levyestatelaw.com for more information.

When Estate Planning Goes Bad: An Introduction to Estate and Fiduciary Litigation

The vast majority of estate plans work exactly as they are intended to-assets are administered and distributed in the manner outlined by the creator of the estate plan to benefit their chosen beneficiaries.  But, for the estate plans that fail to achieve their creators’ goals, the plan’s failure may not be the only negative consequence.  Depending on the reasons and severity of the failure, an estate or fiduciary litigation matter may be commenced.

Estate and fiduciary litigation is a broad category that includes all litigation matters related to estates and trusts brought in the New York Surrogate’s Court.  Each county of New York (including each of the five boroughs) has a Surrogate’s Court that handles the administration of its residents’ estates and trusts as well as any litigation related thereto.  Unlike traditional civil litigation, litigation in the Surrogate’s Court is guided by two estate and trust specific statutes, the Estates Powers and Trust Law (E.P.T.L.) and the Surrogate’s Court Procedure Act (SCPA).

Among the common forms of estate litigation are the following:

Will Contests-If an interested party does not believe that a will submitted for probate accurately reflects a Decedent’s wishes and intentions, he or she may contest the will’s validity.  The two most common objections to a will’s validity are that the Decedent lacked testamentary capacity or that the Decedent was unduly influenced by another party.

Testamentary capacity is presumed unless a challenging party can establish that the Decedent, at the time the Will was executed, was unaware of certain information.  This includes the extent and value of his or her property; who the natural beneficiaries of his or her estate were; what the disposition under the Will being offered was; and how these elements combine to form a plan for distribution. If the challenging party can show that the Decedent lacked one or more of these elements, the offering party will be forced to rebut the presumption of incapacity.

Establishing that a party was unduly influenced requires that the challenging party show that the Decedent was controlled or dominated by a relative or advisor to the specific benefit of that relative or advisor.  It is also necessary to show that the Decedent would not have made the dispositions he or she made without the influence of that advisor or relative.  If the advisor or relative uses their influence to benefit another rather than themselves, a claim for fraud may also be made.

Construction Proceedings-If a will or trust is drafted in a manner that makes the disposition of property unclear, the court may be asked to interpret the document and decide how property will pass.  This type of proceeding may be sought when the assets of an estate are insufficient to make all the required bequests and the fiduciaries and beneficiaries cannot agree on how to distribute the remaining property.

In making its determination, the Court will look to the document first and determine if the Testator or Grantor’s intention can be determined.  If it cannot be determined by the document alone, the parties seeking a specific construction will be required to submit evidence that establishes what the Testator or Grantor’s intent was when executing the document in question.

Contested Accountings-All fiduciaries are required to periodically account for their actions as a fiduciary and provide a statement of what assets were collected and disbursed from an estate or trust.  An accounting is often filed with the Surrogate’s Court as a way to obtain approval over a fiduciary’s actions.

If the beneficiaries of an estate or trust are unsatisfied with the fiduciaries’ actions, they may contest the accounting and seek sanction or removal of that fiduciary.   Objections include a failure of a fiduciary to prudently invest; a failure to properly marshal the assets; a failure to make adequate distributions; a fiduciary engaging in self-dealing; and other claims of misconduct.

Removal Proceedings-The information gathered during an accounting procedure may be used as a basis to seek the removal of a fiduciary.  In New York, the removal of a fiduciary is difficult to achieve and a clear showing of misconduct must be made.  Examples of conduct that may lead to removal include fraud; self-dealing (unless directly authorized by the will or trust instrument); gross mismanagement of the estate or trust funds; and failing to abide by court orders.

As with any form of litigation, estate and fiduciary litigation can be extremely costly.  But, unlike most civil litigation, the subject matters of these forms of litigation are exceedingly personal and achieving a “happy ending” for individuals and families becomes incredibly difficult.  The best solution is to ensure your estate planning is executed properly, your fiduciaries are selected with care and that your wishes are expressed as clearly as possible.  This may not guarantee that your family can avoid litigation, but it can dramatically reduce the chances that it will become a possibility.

Please contact info@levyestatelaw.com for more information.